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Levi Strauss Q1 profit up but expects difficult Q2 ahead

by Prachi Singh
14 Apr 2016

For the first quarter ended February 28, 2016, Levi Strauss net revenues were flat on a reported basis and grew five percent excluding 46 million dollars in unfavourable currency translation effects. The company said that revenue growth primarily reflected increased sales from the retail network in Europe and Asia. Constant-currency direct-to-consumer sales grew low double-digits, reflecting expansion of the retail network as well as ecommerce growth.

“We are off to a good start in 2016 and remain committed to delivering our priorities and financial objectives for the full year,” said Chip Bergh, President and CEO, adding, “Our direct-to-consumer and international businesses continued to fuel our growth, and our Levi's women's business grew again this quarter on a global basis. Looking forward, we anticipate the second quarter will be a difficult comparison to the prior year, given our planned retail and advertising investments, and as the US wholesale channel continues to face traffic challenges and ongoing softness in consumer spending at retail.”

First quarter financial highlights

Constant-currency wholesale revenues were up one percent for the quarter. First-quarter net income grew 71 percent primarily reflecting lower foreign currency transaction losses as well as higher Adjusted EBIT and lower interest expense. Adjusted EBIT grew four percent on a reported basis and twelve percent on a constant-currency basis.

On a reported basis, gross profit in the first quarter grew to 560 million dollars compared with 537 million dollars for the same quarter of 2015, despite unfavourable currency translation effects of approximately 24 million dollars. Gross margin grew to 53 percent of revenues. The company had 86 more company-operated stores at the end of the first quarter of 2016 than it did at the end of the first quarter of 2015.

Currency headwinds impacts revenues

In the Americas, currency translation unfavourably impacted net revenues by 11 million dollars and operating income by two million dollars. Excluding currency effects, net revenues grew two percent. Direct-to-consumer and wholesale revenues grew for the region, primarily due to higher sales in Mexico. US wholesale revenues declined slightly reflecting the Dockers transition.

In Europe, currency translation unfavourably impacted net revenues by 22 million dollars and operating income by four million dollars. Excluding currency effects, net revenues grew eight percent reflecting direct-to-consumer growth from performance and expansion, and operating income was up 15 percent due to the region's higher net revenues and improved gross margin.

In Asia, currency translation unfavourably impacted net revenues by 13 million dollars and operating income by four million dollars. Excluding currency effects, net revenues grew ten percent, primarily reflecting strong performance and expansion of the company-operated retail network. Constant-currency operating income grew six percent, due to the region's higher net revenues.